WPC urges government to kick-start 'next great pensions revolution' with CDC
Collective defined contribution (CDC) schemes are the "best means" for achieving the right balance between collective benefit security and individual freedom and choice, the Work and Pensions Committee (WPC) says.
In a report of its CDC inquiry, the committee said allowing CDC schemes to be established would provide potentially better outcomes than from standard defined contribution (DC) savings while also being an attractive alternative for employers to defined benefit (DB) schemes.
It also urged the government to act quickly to amend the definition of money purchase benefits to include collective benefits as well as consult on a wide range of technical aspects.
CDC could be the "next great pensions revolution" and help return the UK's pension system to "among the best pension systems in the world", it added.
WPC chairman Frank Field said the committee's report could be as seminal a moment for pensions as the Beveridge report was for the welfare state.
"The idea of a ‘new Beveridge' has been overused and under-delivered during most of the welfare state's life," he said. "But the report published today by the select committee offers that opportunity for pensions: how to combine decades of individual pension ownership and provision with collective security."
The support comes as Royal Mail and the Communication Workers Union (CWU) continue to lobby the government over establishing the country's first CDC scheme. The postal service and union agreed in principle to set up such a scheme in February, replacing both its DB and DC schemes, but legislation does not yet permit it and the government has declined bespoke rules.
The potential Royal Mail scheme "is opening the door for CDC to move from abstract idea to practical reality", the WPC said, and could be used as "a model for new collective pension schemes" as well as "constructive industrial relations".
Both Royal Mail and the CWU welcomed the committee's report and hoped the government would act quickly.
Royal Mail chief risk and governance officer Jon Millidge said the company wants to offer a CDC scheme to its 141,000 workers "as soon as possible".
"We are pleased that the committee has expressed its support for CDC and recommends ‘the government should set out a swift timetable for enacting CDC schemes in the UK'," he added.
"Given the support from this influential committee, and the progress we have made with the government in recent months, we hope the government will introduce the legislation required to enable CDC pensions as the earliest opportunity."
CWU deputy general secretary Terry Pullinger added its proposed scheme would provide members with both a "decent wage and security in retirement".
"We are delighted that the select committee has come out in support of our CDC scheme and has recommended the government introduces the legal changes we need to provide CWU members with a decent wage and security in retirement," he said.
Consultation
The committee has now called for consultation on potential CDC rules on valuations and contributions, as well as how the UK could learn from the Netherlands where CDC schemes have thrown up intergenerational risk sharing problems.
The case is less clear-cut for how Freedom and Choice interacts with CDC, the committee added, and the government should consult on what methodology would be most appropriate for calculating cash equivalent transfer values (CETVs) in the accumulation phase, and whether transfers out should be allowed at all in the decumulation phase.
Further consultation should also be held on whether CDC trustees and their advisers should be required to hold special qualifications to deal with the "challenging demands of CDC", while an assessment should be made of The Pensions Regulator's (TPR) suitability and readiness to regulate these schemes.
Meanwhile, borrowing a suggestion made in a separate DB white paper inquiry, the WPC recommended a framework for identifying "trustees who exemplify the very best practice in the emergent field of CDC pensions" should be created to help establish an advisory panel of ‘super trustees'. Those picked would play a capacity-building and troubleshooting role among the wider trustee community.
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